Solo mom gives up eating to pay off car loan after lender mistake

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A woman was approved for a car loan she couldn’t afford. Photo / 123RF

A single mother with three children was forced to forgo food to cover car loan repayments after her lender underestimated the woman’s cost of living.

The case was recently highlighted by the dispute resolution service, Financial Services Complaints Limited (FSCL), as a stark reminder of the responsibilities of lenders to ensure that loan applications are affordable.

The woman, only named Sarah, got her loan application in 2019 to borrow $ 12,550 to buy a new car, with a weekly repayment of $ 120.

However, the mother-of-three had to borrow money from friends and family to feed and clothe her children, so that she could pay off the car loan, which she depended on to take her children to school and at the doctor.

It was when Sarah went to see a financial mentor earlier this year that an assessment showed her budget was about $ 100 a week in deficit.

The financial mentor asked the lender for more information about the loan application, please explain.

The lender said the loan was affordable and there had been no problem as Sarah had always paid her installments.

However, the financial mentor was not happy with this and complained to FSCL on behalf of Sarah, claiming that the lender failed to meet its responsible lending obligations by underestimating the cost of living for the woman. .

The financial mentor explained that Sarah was only able to repay her loan by sacrificing other expenses, which put her and her family under considerable stress.

The FSCL survey found that the biggest variance in assessing loan affordability was the amount the lender allocated for food and household expenses each week – $ 170 per week, compared to $ 220 per week. for the financial mentor.

The lender argued that it was relying on Statistics New Zealand’s home economics survey, which showed that an adult with three children, living in Sarah’s area, with the same income as Sarah, would spend $ 260 per week in food. This figure was then reduced by 65% ​​by the lender to reflect that Sarah was earning 65% of the national average income.

FSCL Executive Director Susan Taylor explained that “while we agree that higher income earners are likely to spend more on food, we believed that Statistics New Zealand data had already taken this into consideration and the lender had made a mistake in applying the an additional 65% discount. “

“Using the undiscounted amount of data from Statistics New Zealand, one would expect Sarah to spend $ 260 per week on food and household expenses, more than her financial mentor and the lender calculated,” he said. Taylor said.

The FSCL found that the lender had made a mistake in calculating whether Sarah could afford the loan and had defaulted on her responsible lending obligations by failing to ensure that Sarah could repay the loan without experiencing significant hardship.

The lender was required to repay all interest and charges added to the loan as a remedy for the breach, amounting to approximately $ 6,500.

Once repaid, Sarah’s outstanding loan balance was fully repaid and she received a repayment of approximately $ 500.

“If a lender makes a mistake in calculating income or expenses, it can result in a violation of the Credit Agreements and Consumer Finance Act (CCCFA),” Taylor warned.


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